This is fund manager Mohnish Pabrai's investor call transcript. He says all investing is value investing and doesn't separate stocks into growth or cyclical. He likes Saudi Aramco (ultra-low cost, huge cash flow), Constellation Software (bought after stock fell from $5,500 to ~$2,000, acquires small software firms), and Warrior Met Coal (at current coal prices, ~$550M annual cash flow vs ~$5B market cap; buyback restrictions end in April). He also holds Kaspi as a 'heads I win, tails I don't lose much' bet.
Mohnish Pabrai elaborated on his investment philosophy during this meeting, with the core principle being not to simply classify companies as "cyclical" or "growth," but to make decisions based on the nature of the business, cash flow, and opportunity cost. He focused on Saudi Aramco, noting its cos
This section is the meeting opening, conducted by fund manager Mohnish Pabrai and investor relations manager Aidan Townsend. It primarily covers legal compliance disclosures and meeting procedures, with no substantive investment content.
Aidan Townsend first confirmed that the Pabrai Wagons ETF (ticker WAGN) is listed on the New York Stock Exchange, then read the standard risk disclosures: investments involve the risk of principal loss; the fund is non-diversified and concentrates holdings in a small number of individual stocks, making it more susceptible to single-stock volatility than diversified funds; the fund may invest in small- and mid-cap companies, facing risks of limited liquidity and greater volatility; the fund has a short operating history and cannot guarantee it will maintain an economically viable size; past performance does not guarantee future results; expressed views may change and do not constitute predictions of future events, performance guarantees, or investment advice; holdings and allocations are subject to change and should not be considered buy or sell recommendations; ETFs trade at market prices rather than net asset value, may trade at a premium or discount, and brokerage commissions reduce returns.
Mohnish Pabrai then thanked the audience, noting that many pre-submitted questions had been received. He stated he would prioritize answering questions about newer holdings or positions not previously discussed, while also trying to cover a variety of topics, and opened the floor for live questions.
Analysis: This section is a standard meeting opening and disclaimer, containing no analysis of the portfolio, market judgment, or any specific holdings. According to General Rule No. 3, legal disclaimers, compliance clauses, and courtesy content should be ignored. Therefore, this section outputs `[SKIP]`.
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Context and Question: The host noted that the fund's holdings are concentrated in cyclical stocks, commodities, shipping, and select compounders, and asked Mohnish Pabrai how he determines the appropriate balance between deep value cyclical opportunities and long-term compound growth stocks.
Answer and View: Pabrai fundamentally rejects the rigid classification of stocks and businesses into categories. Citing Warren Buffett, he argues that value and growth are not mutually exclusive; all intelligent investing is value investing. He believes that viewing so-called "cyclical stocks" as inherently different from "compounders" or "takers" is a shortsighted perspective.
Reasoning and Examples: Pabrai uses Saudi Aramco as a core example to illustrate his point.
1. Breaking the "Commodity Cyclical" Label: Many classify Saudi Aramco as a commodity cyclical business, but Pabrai considers this a mistake that fails to do justice to the business.
2. Demonstrating Its "Compounder" Traits:
3. Arguing Its "Deep Value" Attribute: As a low-cost producer in the bottom 10% of the cost curve, a loss-making scenario is nearly impossible. When oil is at $12 per barrel, it is hard to imagine losing money. While cash flows may fluctuate significantly, it is an excellent business if bought at the right price; a poor investment if bought at the wrong price.
Pabrai emphasizes that he does not classify companies into different buckets and then make allocation decisions based on those categories. He further illustrates this with Alpha Metallurgical Resources and Warrior Met Coal.
1. Current Price Near the Bottom: The PLV (Premium Low-Volatile Metallurgical Coal) index is currently around $220 per ton, roughly the average of the past seven years. Excluding the COVID period and considering global inflation, this price may be near the bottom of the past five to six years.
2. Supply-Side Support: At this price, it is difficult for any meaningful new production to come online. In fact, several coal mines in Central Appalachia and elsewhere are shutting down due to negative cash flow.
3. Cash Flow and Valuation: If the $220 per ton price holds for the full year, Warrior would generate over $550 million in cash flow, and Alpha would generate over $350 million. Alpha's market cap is below $3 billion, and Warrior's is below $5 billion.
4. Long-Term Perspective: These businesses can generate cash for decades (Alpha potentially 50–100 years, Warrior potentially 40–60 years), with low-end annual cash flows of $100–300 million and high-end figures reaching billions.
Conclusion: Pabrai's final answer is: "Where do I sign?" He does not allocate capital based on business type but examines the business's essence, cash inflows and outflows, and then makes decisions accordingly. This explains the structure of the fund's portfolio.
Question and Context: The host noted that Pabrai typically does not invest in tech stocks, yet the fund holds vertical software companies such as Constellation Software, Topicus, and Lumen. He pressed for the rationale and specifically asked about concerns that AI could disrupt this space.
Answer and Perspective: Mohnish Pabrai first clarified that he is not unfamiliar with technology—he holds a degree in computer engineering, ran an IT services and systems integration company for over a decade, worked in the tech industry for about 15 years, and invested nearly 100% in tech stocks from 1995 to 2000 with good returns. The reason he does not invest in tech stocks is not a lack of familiarity, but an inability to find sufficiently attractive valuations—these companies are typically favored by the market, with prices above what a "miser" like him would be willing to pay.
Reasoning Process and Examples:
1. Long-Term Observation and Personal Interaction with Constellation: Pabrai has long read Mark Leonard's letters and admired the company, but consistently refrained from buying due to high valuations. About two to three years ago, Constellation proactively invited him to participate in an internal podcast (not publicly released), with Mark Leonard personally preparing the questions. Subsequently, Leonard invited him for breakfast in Toronto and continued the conversation at his home office. Pabrai described Leonard as a "humble gentleman" and wished him good health. This personal interaction deepened his understanding of the company, but was not the direct reason for buying—valuation was the key threshold.
2. Core Mechanism of Constellation's Business Model: Pabrai believes many do not fully understand this model. Constellation may acquire 100 to 200 software companies annually. They maintain a list of 50,000 to 70,000 vertical software companies and contact each at least twice a year. Pabrai confirmed through a friend who runs a vertical software company that such acquisition inquiries were indeed received. Constellation has a dedicated team that continuously reaches out to founders or heads of these companies via digital means and phone calls, expressing, "If you are considering selling, please think of us."
3. Quantitative Estimation of the Acquisition Funnel: Pabrai made a simple calculation: assuming 50,000 companies, with founders aged between 40 and 80, each age group accounts for about 2.5% of the total. Thus, roughly 2.5% to 4% of founders naturally become willing to sell each year due to retirement—yielding 2,000 to 2,500 potential transaction targets annually. Additionally, there are sellers for non-retirement reasons (e.g., pursuing other ventures). Constellation, with its deep understanding of vertical markets, maintains discipline in screening and pricing.
4. Impact of AI: A Tailwind, Not a Disruption: Pabrai explicitly stated that the rise of AI is a tailwind for incumbents in the vertical software space, not a tailwind for attempts like "Betsy in HR wanting to write HR software from scratch". Three reasons:
5. Timing of Purchase: Constellation's stock price fell from $5,500 (growing at a 20% compound annual rate) to the $2,000 range, finally reaching a price Pabrai found attractive. He then bought Constellation, Topicus, and other related companies.
6. Sober Awareness of Investment Certainty: Pabrai cited Warren Buffett's experience—of Berkshire's roughly 300-400 investment decisions over the past 60 years, only 12 (about 3-4%) truly drove net worth growth. He acknowledged that many of his favored holdings (including Constellation, Warrior, Alpha, etc.) may not develop as expected, and the 4% hit rate rule applies to any investment manager. He explicitly stated: "None of these outcomes are certain."
Key Data and Limiting Conditions:
Question and Context: The host notes that the fintech and payment processing sector in which Kaspi operates is highly competitive, with rapid technological iteration and susceptibility to disruption, and asks Pabrai why he still decided to invest in this target.
Answer and Perspective: Mohnish Pabrai clearly states that the investment logic for Kaspi is entirely different from the fund's holdings in targets like Alpha, Warrior, or Constellation. He characterizes this investment as an asymmetric bet with a "heads, I win; tails, I don't lose much" dynamic.
Reasoning Process and Key Basis:
1. Trigger for the Stock Price Decline: Kaspi's stock price fell sharply after it cut its dividend, surprising the market. Pabrai points out that the dividend cut was due to two acquisitions—a fintech company and a bank in Turkey.
2. Core Expansion Logic: Kaspi is attempting to replicate the successful model it developed in Kazakhstan in the Turkish market. Pabrai provides key data comparisons:
3. Assessment of Management: Pabrai highly praises Kaspi's management (the "jockey"), calling them "absolute rock stars." He studied the management's past achievements and finds their performance stunning. A core bet of this investment is the belief that this manager can "roll up their sleeves" and achieve great things in Turkey.
4. Asymmetric Risk-Reward Analysis: Pabrai elaborates on his "heads, I win; tails, I don't lose much" assessment:
Summary: Pabrai summarizes this investment as a classic "heads, I win; tails, I don't lose much" scenario. He is bullish on the management, the fundamentals of the core business, and its economic model.
Mohnish Pabrai explicitly stated that he has no intention of playing an activist shareholder role. He quoted Buffett: "If they need my help, we're both in trouble." He jokingly described himself as "the least likely person to be an activist shareholder" because he is "too lazy." He emphasized that the investment philosophy is to buy companies where one can cheer from the sidelines and never need to intervene, rather than investing with the intention of changing them. Therefore, there is absolutely no plan to guide Gimat's management, leadership, or board on what to do.
Pabrai added an important position update: filings earlier this week showed that across all accounts he manages (not just the Wagons fund), his stake in Gimat has exceeded 25%, and he is excited about this.
He highly praised Gimat's founder and CEO, calling him a "rock star" and a "classic servant leader." He compared the investment logic of Gimat to the bet on KASPI:
Mohnish Pabrai believes that Transocean's acquisition of Valaris is a stroke of genius by Transocean's management, achieving two to three objectives in one move.
Pabrai notes that the transaction has not yet been completed, but he is positive about multiple aspects of the merger and believes they are likely to successfully close the deal. Overall, the fund views this favorably.
Context: The host notes that Warrior Met Coal’s stock has risen substantially, and its business is cyclical—revenue is declining and the P/E ratio is high—questioning whether the current valuation is reasonable and how to calculate its intrinsic value.
Response and View: Mohnish Pabrai argues that even assuming the current Australian PLV hard coking coal price index remains low (one of the lowest post-pandemic levels after inflation adjustment), Warrior can still generate approximately $550 million in cash flow, while the company’s market cap is under $5 billion. He judges this may be near the trough cash flow level of the cycle and expects periods over the next few years where Warrior could see annual cash flow exceeding $1 billion.
Reasoning and Key Data:
Conditions and Uncertainties: Pabrai explicitly states “no guarantees” but believes the risk-reward ratio is favorable. He acknowledges coal prices could remain low for an extended period, but emphasizes that even in the worst-case scenario, Warrior’s cash flow supports the current valuation, while any recovery in coal prices or initiation of buybacks would yield substantial returns.
Mohnish Pabrai noted that through nearly seven years of shareholding and on-site inspections, he has identified three rare traits in Reysas’ management. When these traits work together, they may produce a “Lollapalooza Effect.”
1. Exceptional Capital Allocation Ability: The management has set an extremely high internal return threshold—an annualized return of no less than 25% to 35% (denominated in USD or EUR). When occasionally accepting projects slightly below this standard, they feel “ashamed” and disappointed. This high bar forces the company to engage in “anomaly-based capital allocation,” meaning it makes unconventional, non-mainstream investment decisions to achieve high returns.
2. Extremely High Execution Efficiency: Pabrai compared Reysas’ CEO to the “Energizer bunny,” describing him as highly energetic and astonishingly efficient. He cited Buffett’s comments on David Sokol and Greg Abel—Sokol can accomplish in a morning what Buffett does in a day, and Abel can do in a day what Buffett does in a week—to analogize the efficiency of Reysas’ CEO. A concrete example: Reysas currently has approximately 12 million square feet of warehouse space and plans to expand it to 23 million square feet within the next 3 years, one of the fastest and largest construction plans in the company’s history. Pabrai believes the CEO can achieve this goal precisely because of his exceptional efficiency.
3. Creativity and Exploratory Spirit: Pabrai likened this trait to Buffett’s description of Ajit Jain—bringing “creativity” to the insurance industry, enabling Berkshire Hathaway’s premium income to reach approximately $140 billion. The creativity of Reysas’ management is reflected in their willingness to enter areas where they have no experience, but their approach is to place small bets first to learn the market.
Pabrai concluded that it is precisely this creative exploratory approach of “moving fast with small steps, learning by doing” that has allowed Reysas to grow from its initial business into a diversified group with the largest truck fleet, largest freight rail network, largest forklift leasing business, tobacco distribution, and more.
Mohnish Pabrai acknowledges that in Turkey, he does prefer investing in companies that generate hard currency (such as USD or EUR) revenue, like his holding TAV Airports. However, he emphasizes that not all Turkish investments must adhere to this principle. For example, many of Reysas’s lease contracts, though denominated in Lira, are indexed to the official inflation rate (even though the official rate is sometimes significantly lower than the actual inflation rate).
For TAB Gida, Pabrai’s investment logic is primarily based on its unique corporate DNA and exceptional management team (Jockey), rather than the currency denomination itself.
1. Business Resilience to Inflation: TAB Gida is the master franchisee of Burger King and Popeye’s in Turkey and also owns proprietary brands. As a fast-food business, while affected by inflation, it has the ability to pass on cost increases to consumers due to its brand value.
2. Core Appeal: Extraordinary “Engineer” DNA:
3. Investment Nature: A “Jockey Bet”:
Pabrai compares this investment to his bet on KASPI, i.e., the core is trust in the management team. He believes TAB Gida’s team (the “jockey”) is exceptionally talented and hungry, and trusts that they will achieve things in the future that are not yet foreseeable today. He concludes: “That’s why we like this business. But again, we’ll see.”
Question and Context: The host asked Pabrai about the specific reasons for selling Occidental Petroleum (OXY), auto dealers, and light-capital homebuilders. These positions had been mentioned in previous holdings but were recently liquidated or reduced.
Answer and Perspective: Pabrai explained that this was not because these companies are inherently bad businesses, but rather due to a continuous comparison based on opportunity cost. His core approach to managing the portfolio is to rank holdings by conviction level: from the highest conviction to the lowest. When new, more attractive opportunities (such as Constellation or companies related to Mark Leonard) emerge, he compares them with the lowest-conviction holdings in the current portfolio and makes replacements.
Reasoning Process:
1. Conviction Ranking: Pabrai ranks each investment in the portfolio by his personal conviction level. OXY, auto dealers, and homebuilders, while all good businesses, sit at the bottom of this ranking.
2. Opportunity Cost Driven: When new opportunities like Constellation arise, Pabrai believes their conviction level is higher than these bottom-tier holdings. Therefore, from an opportunity cost perspective, this is a "very easy choice"—replacing lower-conviction assets with higher-conviction ones.
3. Non-Dogmatic: Pabrai emphasized that he pursues "buy and hold" but is not dogmatically rigid. He does not ignore opportunity cost. The lowest-conviction holdings in the portfolio are always at risk of being replaced, although such replacements are not frequent ("it probably won't happen often").
Key Data and Limiting Conditions:
Question: Why convert a mutual fund to an ETF, and has this transition been planned for a long time?
Mohnish Pabrai's response:
Mohnish Pabrai explicitly stated that if he did not believe the ETF could outperform the S&P 500 over the long term, there would be no point in launching it. He judges that the ETF is well-positioned to deliver strong performance relative to the S&P 500 over a considerable period.
Reasoning and Basis for Judgment:
Mohnish Pabrai responded that he had partially addressed this question in earlier discussions, with the core point being: Things cannot be simply categorized into the distinct buckets of "high-quality moat companies" or "commodity companies."
He illustrated this with specific holdings in his portfolio:
Pabrai's logic is: When a company occupies the optimal position on the cost curve, it is difficult for it to lose money. Even during industry downturns, low-cost producers can remain profitable or even generate decent returns, while high-cost competitors are forced to cut production or exit. Therefore, although these companies operate in cyclical industries, their inherent cost advantage constitutes a form of "moat," potentially leading to long-term returns on capital far exceeding surface impressions. He implied that investors should not dismiss the possibility of these being high-quality investments based solely on industry labels (such as "commodities"), but should instead conduct in-depth analysis of their cost structures, industry positions, and long-term viability.
Background: The host asks Pabrai which of his current holdings fit the "spawner" business model (i.e., companies that can continuously replicate successful business units), and whether an "unstoppable founder" can serve as a legitimate substitute for a traditional moat.
Pabrai's response:
1. On "betting on the jockey": Pabrai believes that in certain cases, betting on the founder (jockey) is justified. This is precisely what venture capital (VC) does—the best VCs don't even care what the startup idea is; they look at the team, not the idea. Pabrai explicitly states that his fund has also made a few "bet on the jockey" investments.
2. Specific holdings classification:
3. On founders replacing moats: Pabrai does not directly answer the theoretical question of whether an "unstoppable founder" can replace a traditional moat. Instead, by listing specific holdings, he demonstrates that in practice, he does incorporate "betting on the jockey" as part of his investment strategy and believes that certain founder-driven companies have the potential to become "spawners."
Background: The host noted that the portfolio includes several companies from emerging markets such as Turkey, and asked what attractive features or macro conditions these markets currently present from a value investing perspective.
Mohnish Pabrai's Response:
Pabrai first cited a view repeatedly expressed by Charlie Munger and Warren Buffett: the enormous opportunities they encountered in the 1960s, mid-1970s, and late 1970s to early 1980s no longer exist today. Munger described such opportunities as "shooting fish in a barrel after the water has run dry." Both even believe that if they were starting over today, they could not replicate their past success. The era they operated in had very limited competition for investment ideas; the Dow Jones Industrial Average was essentially flat from 1965 to 1980, and particularly after the 1973-1974 crash, it was an excellent market for investing.
Pabrai stated that when he first went to Turkey (initially just for a visit, not for investment), he felt as if he had returned to the United States of the 1960s. He believes a key characteristic of the Turkish market today is that a large number of investors are overly focused on macro factors, while paying insufficient attention to micro factors. He put forward a core judgment: In most businesses, micro trumps the macro.
He supported this view with cases and analogies:
Pabrai further explained that in Turkey, they found companies like TAV Airports, whose business is not highly correlated with the domestic Turkish economy. TAV operates numerous airports outside Turkey, and its revenue within Turkey is also primarily denominated in euros. Approximately 46% of its shares are held by the French government, providing good governance. Pabrai noted that companies like TAV Airports are penalized simply for being headquartered in Istanbul, creating mispricing. They are happy to accept and exploit such mispricing.
Finally, he reiterated one of Munger's most important mental models: "Take a simple idea and take it seriously." When he saw what was happening in Turkey, it felt like examining businesses and valuations in the U.S. in the 1960s or mid-1970s—the mispricing was so extreme that it could not be ignored.
Background: The host noted that Pabrai has held metallurgical coal companies for three years, yet global metallurgical coal demand has not shown a significant recovery. He asked under what circumstances or time frame Pabrai would consider his metallurgical coal investment thesis invalidated.
Mohnish Pabrai's response:
1. The core metric is not short-term price, but share cancellation: Using Alpha Metallurgical Resources as an example, he explained that his long-term benchmark for the business is the company's continuous share buybacks and cancellations. Over the past seven years, the stock price has barely changed, but over the past four years (since Alpha initiated its buyback program), the company has repurchased and canceled one-third of its outstanding shares. Pabrai considers this an "excellent track record."
2. Focus on long-term cash flows, not current supply and demand: He explicitly stated that he is "laser-focused" on the number of outstanding shares in 2035 and the expected cash flows from 2035 to 2045. He believes "that's when the game gets interesting."
3. Expected supply-demand inflection point: On the supply-demand front, he expects that around 2028-2029, Indian steel demand will rise, while metallurgical coal supply will decline. At current price levels, increasing supply is difficult.
4. Invalidation conditions not yet triggered: Pabrai judged that, so far, nothing he has seen has invalidated his investment thesis. The company is operating well with no financial pressure. His attitude is to "let time prove it."
Mohnish Pabrai first clearly stated that the outlook for thermal coal is bright. He noted that the AI-driven electricity demand in the US, Europe, and other countries is staggering, and currently, there is no other way to achieve 24/7 power supply. Natural gas is difficult to transport to many places due to pipeline issues, while coal is relatively easier to ship.
However, Pabrai emphasized that he would not develop an interest in thermal coal because of the Iran situation. He admitted that he does not know the final outcome of the Iran conflict and therefore is unwilling to bet on an ongoing war or similar events. He added that, at present, there are no opportunities in this sector that are sufficiently attractive to him.
Pabrai also reminded of a key point: if the situation spirals out of control, metallurgical coal could be used as thermal coal. He mentioned that this occurred after the Ukraine war. Currently, these two markets are separate, but at times they can become closely linked.
Mohnish Pabrai's response focuses on his long-standing approach of investing in the software sector through Leonard-affiliated companies (i.e., Constellation Software, founded by Mark Leonard, and its spin-off entities), rather than simply returning to traditional software stocks.
Question & Context: An investor from the UAE asks whether it is possible to invest directly in the Pabrai Wagons ETF (ticker WAGN) from the local market.
Answer: Mohnish Pabrai states that investors from many countries can invest, and the UAE may be among them. However, he does not provide a definitive answer and instead advises the investor to contact the fund operator, Aidan Townsend (email: at@wagonsetf.com), for accurate information.
Additional Information:
Question and Context: A shareholder inquired about how management views the geopolitical risks faced by KASPI, a company listed on the Kazakhstan Stock Exchange held in the fund, and the current level of confidence in holding this position.
Answer and Perspective: Mohnish Pabrai believes that KASPI has played a significant role in driving Kazakhstan's economic growth and prosperity, serving as a positive force for the country's development. He also notes that KASPI's business model could succeed in markets such as Turkey. Therefore, confidence in investing in KASPI primarily depends on the execution capability of its management.
Reasoning Process: Pabrai acknowledges that geopolitical risks objectively exist, but he believes the market may have overamplified these risks ("The risks are there, but they might be overblown if you overdose on those and go for that."). His judgment logic is: rather than excessively focusing on uncontrollable geopolitical factors, it is better to concentrate on the company's own business fundamentals—namely, KASPI's proven success model in Kazakhstan and its execution capability in expanding into new markets like Turkey. As long as execution is sound, the company can continue to create value, thereby offsetting or surpassing the uncertainties brought by geopolitical factors.
Mohnish Pabrai believes that Topicus is similar to Constellation Software, and its operating style reminds him of Mark Leonard's DNA. He notes that Topicus operates in Europe, where the competitive environment is relatively less intense, and it has an excellent team. Pabrai states that there is nothing he dislikes about Topicus.